Long memory properties and asymmetric effects of emerging equity market: evidence from Malaysia

Abdul Manap, Turkhan Ali and Kassim, Salina (2011) Long memory properties and asymmetric effects of emerging equity market: evidence from Malaysia. The Journal of Risk Finance, 12 (5). pp. 356-370. ISSN 1526-5943

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Abstract

Purpose – The purpose of this paper is to examine the long memory property of equity returns and volatility of emerging equity market by focusing on the Malaysian equity market, namely the Kuala Lumpur Stock Exchange (KLSE). Design/methodology/approach – The study adopts the Fractionally Integrated GARCH (FIGARCH) model and Fractionally Integrated Asymmetric Power ARCH (FIAPARCH), focusing on the Malaysian data covering the period from April 15, 2004 to April 30, 2007. Findings – The study finds evidence of long memory property as well as asymmetric effects in the volatility of the KLSE. The traditional ARCH/GARCH is shown to be insufficient in modeling the volatility persistence. The FIAPARCH specification outperforms the FIGARCH model by capturing both asymmetry effects and long memory in the conditional variance. Research limitations/implications – The results of this study have practical implications for the investors intending to invest in the emerging markets such as Malaysia. Understanding volatility and developing the appropriate models are important since volatility can be a measure of risk which is highly relevant in forecasting the conditional volatility of returns for portfolio selection, asset pricing, and value at risk, option pricing and hedging strategies. Originality/value – This study contributes in providing the empirical evidence on the long memory property of equity returns and volatility of an emerging equity market with reliable estimation models, which is currently lacking, particularly for emerging markets.

Item Type:	Article (Journal)
Additional Information:	5324/8622
Uncontrolled Keywords:	Emerging markets, Equity capital, Fractionally Integrated Asymmetric Power ARCH, Long memory process, Malaysia, Stock exchanges, Stock market volatility, Stock returns
Subjects:	H Social Sciences > HB Economic Theory > HB131 Methodology.Mathematical economics. Quantitative methods H Social Sciences > HG Finance > HG4501 Stocks, investment, speculation
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button):	Kulliyyah of Economics and Management Sciences > Department of Economics
Depositing User:	Dr Turkhan Ali Abdul Manap
Date Deposited:	06 Dec 2011 12:59
Last Modified:	18 Jan 2012 12:16
URI:	http://irep.iium.edu.my/id/eprint/8622

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